Locking bias

Thanks to oil prices dropping down near $30 / barrel, stocks are getting hammered once again.  This has moved money into the bond market; improving mortgage rates in the meantime.  In fact, mortgage bonds are now above the significant level we have discussed the past few days.  The 10 Year Treasury Note yield is also falling and below a significant level.  The yield on the 10 Year is now beneath 1.9%, which is a very bullish sign.  As long as bond prices are to stay at current levels, we could see continued improvement in the mortgage interest rate market.  Mortgage bonds are now within 100 basis points of the lows we saw in 2015.  A drop to this level would be a strong sign for the housing market as we move into the stronger summer months of home purchases. 

The deepening crisis in the oil industry and subsequent reaction in the stock market certainly has the Federal Reserve concerned.  There was a tremendous amount of pressure in the market pushing for a rate hike.  Most economists believed we would make it through the transition of a slow climb higher without much of a negative impact.  However, since it had been 9.5 years since the last time our economy experienced a rate increase, there has been little history to provide clues as to how our market would react.  With inflation at anemic levels, a rate hike also creates a headwind for inflation to grow.  With all of this in mind, the chances of a rate hike in 2016 are now very low.  This is a sharp contrast from the Federal Reserve’s “4 rate hike in 2016” estimate that they released last December.  That is one comment they certainly would like to take back, and something they will eventually have to explain or correct. 

Bond prices have improved significantly.  At these levels, the risk of floating is high.  If you have a loan that needs to close in the near term, consider locking to take advantage of the recent gains.  If you choose to float, do so carefully.  The risk may prove worthwhile in the end.